Term Life Insurance FAQ
Term life insurance is designed to provide death benefits to the named beneficiaries of the policyholder. People typically buy term life insurance to cover the cost of living for their families, as well as large expenses like college tuition, in the event that they pass away during a specified term. Sometimes people buy just enough term life insurance to cover end of life expenses and funeral costs.
When you buy term life insurance, you select a term, such as 10, 20 or 30 years, and an amount of coverage, typically ranging from $25,000 up to as much as $2,000,000 dollars.
The expenses you want your term life insurance to cover should dictate the amount of term life insurance you buy. For example, you might want to factor in your family's anticipated future costs as follows:
- Estimate your family’s annual living expenses.
- Add any anticipated costs your family will face in the foreseeable future. For example, if you know the family car will need to be replaced within a few years, you could add the cost of a new vehicle.
- Calculate in the amount it would cost to pay off your mortgage.
- If your children are still in school, add the cost of their college education, in addition to the costs of their annual activities, sports and music lessons.
- You may even want to include the anticipated costs of your children's weddings among major financial expenditures you can foresee.
Once you add up the expenses you want your term life insurance to cover, you can then deduct any assets, such as savings and investments, that would also help to cover those costs to help you arrive at an appropriate coverage amount.
A term life insurance policy is not an asset for the policy holder, but it can be considered as an asset for the beneficiary. If you are looking for a life insurance policy as an investment vehicle, you may want to consider a permanent life insurance policy, such as whole life insurance or universal life insurance.